Beermat Club:
Ask Mike
Look to friends and don't go kissing frogs
Q. I run a health and beauty spa. I financed the business through my own money, bank loans and cash from family and friends. I am now looking to attract angel investors. What is the best way to do this?
A. The first place to look for angel investors is still your family and friends, but I suggest you now extend your search into their extended network - people they know. Beauty spa treatments are a luxury service, which is potentially very good news for attracting investment from people you know. Your customers are affluent and probably have affluent friends.
Many people are looking to invest in interesting and fun businesses, and yours is easy to understand, as opposed to software ornanotechnology.
You should look for investors who get what you do, are interested in your business and want to see it grow. This is most likely someone who has used your health and beauty spa (or knows someone who has) and so can vouch for the quality of your service.
If you approach the angel investment community, people you don't know, you'll spend a long time "kissing frogs" and many of them demand increasing amounts of financial information and other collateral that is very time-consuming and de-motivating to produce.
Also, some angel investors behave like mini venture capitalists and have no real interest in the business itself, they are only interested in getting a quick return. You want someone who can not only provide good business advice when required, but will also open doors to new customers and business partnerships for your company.
They'll not be pressing you to ramp up the business immediately and go for a quick trade sale to make their money back - they'll be happy with annual dividends in the short term.
But most importantly they share your passion for the business, proudly showing off their new investment to their friends and work colleagues, thus bringing in new customers, which is fundamental to your growth.
You presumably started the business because you had a passion for beauty treatment and have up until now treated it as a lifestyle business. Do keep this going as long as you can, with investors who are "good" angels, who see this as fun and interesting, as opposed to hard-nosed "bad" angels, who only see it as a way of making a quick return.
Mike Southon, co-author of The Beermat Entrepreneur and Finance on a Beermat
First published in the Financial Times: 11th March 2006